The UK’s Labour government has announced sweeping reforms to the tax code which would make British farmers liable to pay inheritance tax. Dubbed the ‘family farm tax’ by critics, the proposals have been met with a wave of opposition from agricultural workers. Many British farmers warn that a 20 per cent ‘death tax’ would put small and medium-sized farms out of business. The government says its tax only targets a small amount of very wealthy landowners and that the additional taxes will ‘protect small family farms.’ So, what is the farm tax, and who is right?

Will farmers pay full inheritance tax?

Under UK tax rules, farmers are entitled to relief from inheritance tax when the estate is passed down due to a death. HMRC data shows that in 2021/2022 1,730 estates claimed this relief, totalling £550 million in relieved inheritance tax. That is now set to change after the government announced major restrictions on the relief in its recent budget. The Institute for Fiscal Studies, an independent economic think tank, summarised the changes as follows:

“The Budget announced that, from April 2026, business and agricultural reliefs will be restricted. Estates will be eligible for 100 per cent inheritance tax relief on the first £1 million of combined business and agricultural assets and 50 per cent relief on amounts over £1 million (i.e. 40 per cent tax will apply to only 50 per cent of the value of business and agricultural property in excess of £1 million). Shares designated as ‘not listed’ (notably AIM shares) will in all circumstances receive only 50 per cent relief, i.e. they are not covered by the £1 million of 100 per cent relief.

“The 100 per cent and 50 per cent reliefs are in addition to the nil-rate band, which allows £325,000 of assets to be passed on free of inheritance tax, and the residence nil-rate band which allows a further £175,000 to be passed on if bequeathing a home to a direct descendant. This means that, in many cases, an individual could pass on £1.5 million free of tax and a couple could pass on £3 million free of tax.”

How many farmers will pay inheritance tax under the new rules?

There is disagreement over how many farmers will be impacted by the changes to inheritance tax relief. The UK government says that the vast majority of relief claimants will be unaffected by the new rules. In a statement issued by HM Treasury, a spokesperson said:

“The reforms mean the majority of claims for these reliefs will be unaffected. Almost three-quarters of estates claiming agricultural property relief and the majority of estates claiming business property relief in 2026 to 2027 are expected to be unaffected by these reforms. This means more than 3,000 estates making claims each year are expected to be unaffected.”

However, the National Farmers Union has claimed the exact opposite, they say that rather than 75 per cent of farmers being exempt from the tax, 75 per cent will be liable to pay the new tax. In an impact analysis carried out by the NFU, they found that:

“[R]ather than the 27 per cent suggested by Government, it is expected that 75 per cent of commercial family farms will be above the £1m threshold.

“This is because once landowner claims on blocks of bare farmland and non-commercial farms are removed from the evidence base used by Government, historical claim values are adjusted to reflect current market conditions and the combined impact of claiming BPR alongside APR is considered, the proportion of farms impacted increases significantly to 75 per cent.”

The President of the NFU, Tom Bradshaw, has warned that farms could go bust as a result of the new tax liabilities:

“Without this change, farmers will be forced to sell off parts or all their farm businesses to pay huge tax bills, with added cost for pensions. All this puts additional costs to food-producing businesses which are already operating on paper-thin margins.

“Together with changes to the National Living Wage and National Insurance, I can’t see a scenario where food prices don’t rise, at a time when the public have already been hammered by a cost-of-living crisis.”

So, who is right, the government, or the critics? The independent fact-checking service, Full Fact, says the government analysis that just 500 claims a year would be affected as a result of the changes was likely wrong, but that not all farms exceeding £1 million in value would be subject to inheritance tax. Full Fact also notes that the NFU analysis, which removes ‘non-commercial’ farms from its sums, fails to define what constitutes a commercial farm. However, the fact checker did not come down on either side, suggesting the reality was somewhere in between the various estimates.

Estate planning and the farm tax

While Full Fact concedes they can’t say for sure how many farms will have to pay inheritance tax going forward – they say the actual numbers could be lower than pessimists believe as a result of estate planning.

Estate planning is the process of organising and preparing for the distribution of your assets and responsibilities after your death or incapacitation.

It involves creating legal documents such as -, trusts, powers of attorney, and healthcare directives to ensure your wishes are carried out efficiently. Done well, estate planning is an important way to remain tax efficient.

Rob Hitch, an accountant who specialises in farms, set out some ways that farmers could potentially minimise their inheritance tax obligations, in a series of posts on X, writing:

“[R]emember IHT is a tax paid when you die, gifts can be made to reduce assets and reduce exposure to liability.

“People who are young enough to make gifts and survive seven years will largely be able to plan to minimise the IHT charge,” So, while estimates vary on the number of farms which will be impacted by changes to inheritance tax rules, some farmers are already taking steps to ensure they remain tax-efficient when the new rules take effect.